The Research On The Impact Of Capital Regulation To Bank Loans

The development of banking system has a great influence on economy as is known toall. By the1980s, there are many banking crises happened in the world whichappeared in not only developing countries but also developed courtiers. Large numberof banking bankruptcies emerged in Japan and the United States and these frequentlyhappened banking crises drew attention of banking regulatory authorities. In order toimprove robustness of banking system, Basel commission published the final draft ofBasel agreement in1988. While economic recession arose in the United States andJapan which were first to implement the Basel agreement in the1990s.Many scholarsgave the theory analysis and empirical research on this phenomenon. The defect andrigid rules in Basel agreement caused credit crunch in banking system and furthereconomy recession although the minimum requirement in the Basel guaranteed thesecurity of banks to some extent. Therefore attention and awareness on the effect ofcapital regulation to credit crunch has increased, People tried to take steps to ease thebad effect of credit crunch resulted in capital regulation.Subprime crisis swept across the globe early in2007which directly bred thenewest BaselⅢ.This edition were finally passed in only one year and formalapproval were put into effect in the G20summit in Seoul of Korea. The Baseldefined that the minimum standard of common capital stock need raise from2%to4.5%which is called the core tier one capital ratio. Besides, banks also needestablish the2.5%capital conservation buffer and inverse cycle capital bufferfrom0to2.5%. Moreover, broader lower limit of tier one capital adequacy forcommercial banks will enhance from4%to6%.This paper is considered from the perspective of finance regulation which is on thebasis of previous study. Then it applies theory to practice using current data andbanking situation in our country to gain the relationship of capital constraint and loandeflation. The process is completed by means of panel data and cross section datawhich are from the dimension of dynamic condition and static state. Finally, theconclusion shows that credit crunch resulting from capital regulation didn’t appear inour country at the present stage because of special financing structure and economygrowth model. However, with the intensification of banking regulation, we must payattention to the impact of capital regulation on loan supply.Under the pressure of Basel Ⅲ,this paper put forward three suggestions aiming at ourspecific situation. Those advices include that commercial banks must transform their business model and improve profitability. Regulatory authorities should raise controlefficiency and practice elastic capital ratio management as well as exploit financingchannels positively in order to push on multilevel capital market development.